Slow Ride Corp. is evaluating a project with the following cash flows: Year Cash

Question

Slow Ride Corp. is evaluating a project with the following cash flows:

Year Cash Flow

0) –$ 29,800

1)12,000

2)14,700

3) 16,600

4) 13,700

5 ) 10,200

The company uses an interest rate of 9 percent on all of its projects.

Calculate the MIRR of the project using the discounting approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Calculate the MIRR of the project using the reinvestment approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Calculate the MIRR of the project using the combination approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Solution :

Discounting approach:
0 = -29800 + 12000/(1+MIRR)^1 + 14700/(1+MIRR)^2 + 16600/(1+MIRR)^3 +
+ 13700/(1+MIRR)^4 + 10200/(1+9%)^5
Solving equation we get: MIRR 0.3557 35.57%

Reinvestment approach:
[t=5] cashflow = 12000x(1+9%)^4 + 14700x(1+9%)³ + 16600x(1+9%)² +
+ 13700x(1+9%)¹ +10200/(1+9%)° = 56592.89

0 = -29800 + 56592.89/(1+MIRR)^5
Solving equation we get: MIRR 0.1369 13.69%

Combination approach:
[t=5] cashflow = 12000x(1+9%)^4 + 14700x(1+9%)³ + 16600x(1+9%)² +
+ 13700x(1+9%)¹ = 46392.89
[t=0] cashflow = -29800 + 10200/(1+9%)^5 = -23170.7
0 = -23170.7 + 46392.89/(1+MIRR)^5
Solving equation we get: MIRR 0.1369 13.69%

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